Capital Adequacy and Financial Performance of Deposit Taking Savings and Credit Cooperative Societies in Kenya
DOI:
https://doi.org/10.53819/81018102t2428Abstract
DT SACCOs are significant in the stimulation of the economic growth in Kenya, besides contributing to the stability of the country’s financial system. The financial institutions promote investments and through financial inclusion to the household economies. In the year 2022, the DT-SACCO segment had a 5.71% ratio of total assets to the national GDP. Though prudential regulations to guide these financial institutions have been set, several DT SACCOs had their licenses revoked or renewed conditionally. Besides, the trend of ROA in this segment has been erratic and inconsistent, implying that the segment has not been consistently utilizing the assets maximally. The study was guided by Information Asymmetry theory and inclined toward positivism philosophy while adopting explanatory research design. Secondary data for period 2018 to 2022 were collected using data extraction sheets. The target population was 176 while the sample size was 159, which derived by utilizing the inclusion-exclusion criteria. Data was analyzed using STATA, where both descriptive statistics and inferential analysis were conducted. Results showed that capital adequacy had a significant effect on the financial performance of DT SACCOs in Kenya. This implies that higher capital ejected into these financial institutions, the higher the ROA, and vice versa. Rigorous regulations and policies on capital levels/adequacy ratio should therefore be put in place by the regulator to enhance the financial performance.
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